1responding to Challenges of Global Marketing

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C. Samuel Craig and

Susan P. Douglas

Challenges of Global

arkets:

Change, Complexity,

Competition and

Conscience

In developing global marketing strategy to com-

pete in world markets, managers must address the

challenges of constant change, increased complex-

ity and intense competition, wh ile, at the same

time, responding to calls of

conscience.

However,

the appropriate response to these challenges de-

pends on the stage of involvement in international

markets, i.e., whe ther the firm is just en tering inter-

national m arkets, is aggressively expand ing its in-

ternational presence or attempting to rationa lize

far-flung operations. The paper suggests how a

firm should respond to these challenges, and shows

how using different tools such as information sys-

tems technology, creating new organizational

forms providing administrative and organizational

flexibility, and effective resource deploym ent at

various stages of the value cha in can help a firm to

cope with them.



C.

Samuel Craig is professor of mar

keting ami iitternational business and

chairman of

th

marketing depart-

ment at Stern School of Business,

New York University.

Susan F. Douglas is professor of mar

keting and international business at

Stern School of Business, New York

University.

Glob alization Js no longer an

abstraction but a stark reality

that virtually all firms, large and a

small, face. Firms that want to sur-

vive in the 2 1st century must con-

front this all encompassing force that

pervades every aspect of business. In

a wide range of industries from auto-

mobiles to food and clothing, firms

face the pressures of global competi-

tion at home as well as in interna-

tional markets. Choosing not to

participate in global markets is no

longer an option. All firms, regard-

less of their size, have to craft strate-

gies in the broader context of world

markets to anticipate, respond and

adapt to the changing configuration

of these markets.

Navigating global waters success-

fully and establishing direction to

guide the firm in an increasingly tur-

bulent world environment is a key

challenge facing today's managers.

To date, this has largely been per-

ceived as the purview of large multi-

nationals with diverse far-flung

operations in all parts of the global

market.' Of key importance is the

need to remain responsive to local

markets, while at the same time

achieving global efficiency through

integrating and coordinating op era-

tions across world markets and allow-

ing for the transfer of learning from

operations in one part of the world

to another.-

For large multinationals with expe-

rience in plying global waters, this

orientation is not misplaced. How-

ever, the conclusions and implica-

tions do not apply to firms with

limited experience in international

markets who are just beginning to

target customers in other countries

and learning how to build operations

in these m arkets. Today, an increas-

ing number of small and medium-size

firms are going global and their con-

cerns are marked ly different from

those of established multi nationals.

Firms initially en tering interna-

tional markets will be more con-

cerned with learning about

international markets, selecting an ap-

propriate arena to compete, and de-

termining how to leverage core

competencies in international mar-

kets. Once in international markets,

firms have to build their position in

these markets, establishing a strong

local presence by developing new

products and adapting to local tastes

and preferences. As the firm expands

internationally, it will need to move

away from country-centered strate-

gies and improve integration and co-

ordination across national markets,

leveraging its competencies and skills

to develop a leadership position. '

The purpose of this paper is to

identify the challenges facing firms in

global markets and develop a frame-

work which can be applied by all

firms in dealing with these chal-

lenges, irrespective of their stage of

involvement or experience in global

markets. First, the four major chal-

lenges (change, com plexity, competi-

tion and conscience}, and the

implications for firms in each stage

of involvement in international mar-

kets are discussed. Then, three key

management tools for dealing with

these challenges are examined—infor-

mation systems technology, adminis-

trative structures, and resource

deployment, and their use in each of

the three phases of involvement are

outlined.

Winter 1996



The Changing Globescape

Establishing a clearly defined com-

petitive strategy to provide direction

for their efforts was a paramount

concern of managers in the 'SOs.^ As

competitive pressures became more

acute, management recognized that

they needed to develop a strategic

thrust geared to securing and sustain-

ing a competitive advantage in their

served markets. Effective strategy

moves were grounded in assessment

of the firm's current competitive posi-

tion and identification of the skills

and capabilities affording the most

leverage in the light of future market

developm ents.'' More recently, the va-

lidity of traditional approaches to

strategy" and even the value of strate-

gic thinking'* has been questioned.

The transformation of the competi-

tive landscape by broad-based

changes in technology, structural

changes impacting industry, the emer-

gence of new sources of competition,

and increased environmental con-

cerns, have all led to a re-evaluation

of strategic thinking and strategy de-

velopment. In particular, the chang-

ing competitive landscape and

increasingly turbulent environment

suggest the need for new approaches

and a broader view of how the or-

ganization should respond to chang-

ing environmental conditions.''

Technology is rapidly altering the

nature of competition and strategy in

many industries. The global prolifera-

tion of relatively inexpensive comput-

ing power and global linkages of

computer networks through telecom-

munications have resulted in an infor-

mation-rich, computation-rich and

communication-rich organizational

environment. Telecommunications

and computer networks are changing

the way in which managers work

and interact, providing links between

country-centered organizations, and

permitting technology to be rapidly

shared and learning transferred

throughout the organization. As a re-

sult, speed of technological diffusion

and change is rapidly increasing.'"At

the same time, the growing techno-

logical orientation of many industries

and use of computers and telecommu-

nications technology have created

greater knowledge intensity and de-

pendency. Often technological knowl-

edge and rapid product and process

innovation is the sine qua non to

achieving and sustaining com petitive

success in the global marketplace.

The telecommunications revolu-

tion has also stimulated major struc-

tural changes in industries and

organizations . Vertically integrated,

centralized organizational systems

have given way to decentralized,

highly fragmented fluid structures,

linked by agreements, contracts and

working relationships. This has radi-

cally changed the nature and basis of

competitive advantage and the eco-

nomics of doing business. At the

same time, traditional industry

boundaries and demarcation lines are

breaking down as business and tech-

nologies fuse or converge (for exam-

ple, communications and consumer

electronics, entertainment and educa-

tion) and new industries emerge,

with as yet no clearly defined

boundaries."

Competition is also intensifying ,

as globalization changes the bounda-

ries of competition and new sources

of competition emerge. The basis for

competition is also changing, as new

players are able to enter the market

with an ease unknown even ten years

ago. Information technology has dra-

matically transformed the costs of do-

ing business and enabled firms to

bypass stages in the value chain, for

example, going directly to customers,

or outsourcing functions and opera-

tions. Such factors have changed the

nature of the value chain in many in-

dustries, enabling new and non-tra-

ditional competitors to enter the

market rapidly and compete effec-

tively.

Concern over the impact of indus-

trial activity on the environment has

also heightened, adding to the com-

plexity of doing business in today's

world. New forms of packaging, de-

mand for recycling, more efficient

use of resources, greater responsibil-

ity for protecting the environment,

limiting toxic waste, as well as to

educate consumers and to develop

more "user friendly" products are all

compounding the tasks and demands

placed on the organization. Increas-

ingly, firms are called upon not only

to be environmentally and politically

correct, but also to be more responsi-

ble citizens in all their activities

worldwide.

Challenges Facing

Global M arkets

Involvement in global markets pre-

sents the firm with a number of chal-

lenges. These challenges influence

competitive advantage in global mar-

kets, and in part determine how read-

ily the firm can achieve economies of

scale and scope as well as realize syn-

ergies from operation in a multi-

country environment. In striving to

develop a strategy that will make it

more competitive, the firm must grap-

ple with four interrelated challenges

of global marketing strategy—-

change, complexity, competition and

conscience (see Figure 1).

The rapid pace of

change

implies

that marketing strategy must be con-

tinually monitored and adapted to

8

The Columbia Journal of World Business



Figure 1

Challenges Facing the Global Marketer

GLOBAL STRATEGY

Initial Market Entry

Local Market Expansion

Global Rationalization

take into account new economic,

technological, political and social re-

alities. The interplay of these forces

in different geograp hic areas creates

a new

complexity

as market configu-

rations evolve, taxing the firm's ab il-

ity to manage far-flung and diverse

operations. The increasing intensity

and accelerated speed of

competition,

constitutes yet another challenge in

the path towards success in global

markets. Competitors actions also ac-

celerate change and increase the de-

gree of complexity. In addition.

growing awareness and concern with

social responsibility and ethical is-

sues, such as environmental protec-

tion and conservation, or consumer

rights,

require that the firm develop a

social

conscience,

and heed this in

shaping its global marketing strategy

{see Table for a summary of the chal-

lenges and responses by phase of in-

ternational involvement).

h nge

Rapid change pervades all aspects of

operations in global markets as well

as the context in which they take

place. Not only are the rates of tech-

nological evolution, knowledge o bso-

lescence and the intensity of

competition increasing at an alarm-

ing pace in many industries, but un-

foreseen events are dramatically

changing the political and economic

context in which markets develop

and strategies are formulated.

Technological change renders

product development, production

processes, and experience rapidly ob-

solete and contributes to escalating

investment costs as well as height-

ened competitive pressures. In the

notebot)k segment of the personal

Global Market Challenges as a Function of

International Market Development

Stage o f International

GLOB L M RKET CH LLENGES

Market

Development

Phase

-

Initial Market Entry

Phase 2 -

Local Market Expansion

Phase 3 -

Global Rationalization

hange

Confined

Selected

Varied

Multi-directional

Continual

Pervasive

Inter-linked

omplexity

Simple

Uni-dimensionat

Moderate

Hierarchical/Matrixed

Highly

Virtual/Networked

Inter-active

ompetition

Limited

Established

Mounting

Diverse

Intense

Worldwide

tnter-dependent

onscience

Contained

Parochial

Diverse

Conflicting Demands

All encompassing

Multi-faceted

Inter-twined

Winter 1996



computer industry, for example, the

cycle of new model introduction has

shrunk to less than three months, ren-

dering models rapidly obsolete and

requiring constant vigilance to new

product development and attention

to keeping ahead of the competition.

The rapid pace of change is fur-

ther complicated by its increasingly

discontinuous nature. Until the late

8O's,

change w as somewhat predict-

able and linear in natur e. Today, es-

tablished models for predicting

change no longer work in many in-

stances due to the discontinuity of

change. At one time, market trends

and growth in a developing country

could be predicted on the basis of

trends in more advanced countries

ten years earlier. For example, devel-

opment of telecommunications net-

works within a country progressed

slowly and required massive invest-

ment in wires and cables to connect

customers. Today's cellular technol-

ogy makes it possible for a country

to quickly develop a modern telecom-

munications system and "leap frog"

the wire stage. Further, cellular tech-

nology opens up the market for fax

machines, personal digital assistants,

modem s, etc.

At the same time, as customers be-

come more mobile and are exposed

to new ideas and patterns of behav-

ior through the new global media,

the diffusion of new pr odu cts and in-

novation takes place more rapidly.

Rather than first being adopted by

opinion leaders and then trickling

down to other members of society, in-

novations are now spreading horizon-

tally across countries and societies.

No sooner does a new trend or fash-

ion emerge in one country than it

spreads rapidly to another. Not only

are global marketers agents of

change in introducing new and inno-

vative products and services to other

countries, but in addition, they must

respond to the rapid pace at which

societies are changing and market

trends evolving.

While the pace of change is accel-

erating, pushed by the engine of tech-

nology and global communication, it

is becoming increasingly uncertain

and unpredictable-occurring in unex-

pected ways from unexpected

sources. Fvents such as the break-up

of the Soviet Union have had far-

reaching, often cataclysmic effects on

world markets and the geopolitics of

world trade. Subsequent political and

econom ic events dramatically halted

the rate of economic growth and for-

eign investment in the Soviet econ-

omy. The break up also had an

impact on former trading partners

such as India, Cuba, Vietnam, and

Northern Korea, forcing them to

seek out new markets for their prod-

ucts,

and sources for energy, arms,

minerals, and other raw materials. It

also put a sudden end to the Cold

War and ushered in a new political

era. Industries such as defense, which

fed on the desire to maintain the geo-

political balance, declined, triggering

the realignment of related and tribu-

tary industries such as aerospace,

electronics, and vehicles.

A new economic order thus ap-

pears to be emerging, characterized

by new players and new and more di-

verse patterns of trade. Yet, all these

changing patterns appear fraught

with uncertainty, as a surge in one di-

rection is countered by a pull in an-

other. A new instability has crept

into world markets, threatening at

any moment to tilt the precarious bal-

ance of economic forces. Moves to-

ward world economic growth,

regional integration or the empower-

ment of Third World nations, can

without w arning be thwarted by pres-

sures to retreat behmd the bulwark

of economic nationalism.

oping with hange

While there is no denying the rapid

pace of change, the consequences dif-

fer depending on the stage of globali-

zation. Firms in PHASE 1—inter

national market entry—-are relatively

less affected by the unc ertainty

spawned by change, since their scope

of international activity is confined

to a few markets. Furthermore, they

can pace their involvement relative to

the anticipated rate of change, and se-

lectively avoid markets characterized

by high levels of uncertainty, such as

the Latin American markets.

Firms in the PHASE 2 of globaliza-

tion—local market expansion—with

fairly extensive international opera-

tions will have to cope with variation

in change. Some markets will be

changing rapidly while others will be

more stable. These uneven rates of

change result in multi-directional

pulls as the firm attempts to chart a

course through the cross-currents of

differential change. The difficulties of

change will be exacerbated by the

number of markets in which the firm

is involved.

Firms in PHASE 3 of globaliza-

tion—global rationalization-—will be

affected by pervasive change which

impacts all aspects of its business

throughout m arkets worldwide.

Given the extent of its global opera-

tions, this impact will be felt on a

continual basis. Not only must the

firm cope with change on a market

by market basis, but it must also deal

with the interlinkages between mar-

kets. Thus, change is a constant real-

ity and mechanisms must be




developed to incorporate it into the

firm's overall strategy.

Rapid change has both positive

and negative aspects. For firms able

to adapt rapidly to the new environ-

ment, there are countless oppo rtuni-

ties. Those unable to adapt will see

their market share dwindle. Firms in

the initial entry phase have the lux-

ury of picking and choosing markets

that are suited to their core competen-

cies.

Firms in PHASE 3—global ra-

tionalization—need to focus on

retaining strategic flexibility to cope

with the rapid change that is occur-

ring at uneven rates in different mar-

kets. One of the key responses is to

be able to deploy resources so as to

help shape change, rather than being

swept along by its forces. Firms in

PHASE 2—local m arket develop-

ment—are caught in the middle and

face the most daunting challenge in

coping with change. They have not

fully developed the structural mecha-

nisms to coordinate and control m ul-

tiple interlinked markets and have

greater difficulty re-deploying re-

sources across markets.

omplexity

A

second challenge arises from the in-

creasing complexity of managing in-

ternational operations. Technological

advances, on the one han d, enable

management to direct, coordinate,

and control operations on a much

broader and diverse geographic scale

and scope than previously possible.

Yet at the same time, such advances

add further complexity, as manage-

ment has to master the tools and

skills required to handle the burgeon-

ing international infrastructure. As

the geographic scope and scale of op-

erations extends further and further,

management is faced with the task of

directing and controlling diverse and

far-flung activities at various stages

in the value chain, often in widely di-

vergent environmental contexts. Ad-

ditional layers of organization begin

to creep into the corporate infrastruc-

ture and further complicate the

global management task. With trends

toward regional market integration,

management systems are established

to direct and coordinate market op-

erations within a region, and to pro-

vide an intermediate link between

corporate headquarters and local

management. At the same time, or-

ganizational links between functions

in each stage of the value chain are

added at a global level to ensure the

transfer of ideas, information and ex-

perience across geographic areas and

to exploit potential synergies world-

wide. Similarly, as customer mark ets

become more dispersed, estab-

lishment of linkages with customers

and suppliers becomes increasing

critical in order to coordinate supply-

ing and servicing these markets rap-

idly and efficiently, and to compete

effectively in global markets.

Sometimes links are established

with other organizations, in some

cases competitors, to exploit newly

emerging opp ortun ities in specific

product markets or parts of the

world. Strategic alliances may be

formed with firms to provide desired

geographic market coverage, or skills

and resources needed to implement a

given strategy. In other cases, temp o-

rary networks are formed by far

flung partners (suppliers, customers,

and competitors) sharing costs, skills,

access, and operations in global mar-

kets through electronic links, utiliz-

ing the latest information technology,

to take advantage of a specific mar-

ket opportunity. These networks are

fluid and flexible, evolving in re-

sponse to changing m arket condi-

tions. Once an opportunity is met, or

disappears, so the network will dis-

band.

Spatial market patterns are also

becoming increasingly complex.

Once the configuration of markets

was predominant national in charac-

ter, surrounded by seemingly impene-

trable boundaries. However, the

gradual breaking down of such

boundaries in many parts of the

world, means that markets pre-

viously viewed as separated and inde-

pendent are becoming linked and

beginning to function as one.

ontending with omplexity

Complexity in the global environ-

ment is a product of contextual fac-

tors such as technological advances,

diverse social and economic change,

and political upheavals. More di-

rectly, for the firm complexity is in-

tensified by the scope of its

operations in global markets, at dif-

ferent levels of the value chain and

how they are arrayed across markets,

the interlinkages and interdependen-

cies between markets, and the in-

creased blurring of product market

boundaries, both functionally and

geographically.

Firms in PHASE 1, tend to face

relatively simple operating environ-

ments. Control and coordination are

straight-forward issues as marketing

activities are limited to a few coun-

tries beyond the domestic market. De-

cision making is unidirectional

emanating from the domestic market

base.

As firms expand their interna-

tional operations in PHASE 2 and be-

gin to focus their efforts on

developing products and services to

suit tastes in local markets, they be-

Winterl996



gin to encou nter a greater degree of

complexity. Coordination and con-

trol of activities in international mar-

kets become more problematic as the

appropriate degree of centralization

becomes unclear. Organizational

structures become more communica-

tion intensive and matrixed to recon-

cile potentially conflicting goals and

differing market conditions in each

market. Decision making tends to

take place on parallel tracks.

Firms with extensive international

operations must develop strategy and

conduct business in highly complex

environments. Outsourcing of func-

tions and establishment of relational

networks paves the way for the vir-

tual organization. Business functions

become interlinked and interact to al-

low for optimal control and coordi-

nation of activities on a global basis.

Companies such as Ford, IBM, and

Bristol Meyers Squibb have begun to

evolve organizational structures that

will allow them to compete effec-

tively into the 21st century.

ompetition

Increasing intensity of competition in

global markets constitutes yet an-

other challenge facing companies at

all stages of involvement in interna-

tional markets. As markets open up,

and become more integrated, the

pace of change accelerates, technol-

ogy shrinks distances between mar-

kets and reduces the scale advantages

of large firms, new sources of compe-

tition emerge, and competitive pres-

sures mount at all levels of the

organization.

As more and more firms venture

into global markets, competition pro-

liferates, posing new threats and dan-

gers to be reckoned with. In addition

to facing competition from well-

established multinationals and from

domestic firms entrenched in their re-

spective product or service markets,

firms face growing competition from

firms in newly industrializing coun-

tries and previously protected mar-

kets in the Third World, as well as

emerging global n etworks or coali-

tions of organizations of diverse na-

tional origins.

Firms from newly industrializing

nations such a Taiwan, Singapore,

Korea and Hong Kong are increas-

ingly taking the initiative in compet-

ing in global markets, rather than

acting as low-cost suppliers to firms

in the Industrial Triad. The threat of

competition from companies in coun-

tries such as India, China, Malaysia,

and Brazil is also on the rise, as their

own domestic markets are opening

up to foreign competition, stimulat-

ing greater awareness of interna-

tional market opportunities and of

the need to be internationally com-

petitive. Com panies which previously

focused on protected domestic mar-

kets are entering into markets in

other countries, creating new sources

of competition, often targeted to

price-sensitive market segments.

At the same time, spurred by new

advances in communications technol-

ogy and rapid obsolescence, the

speed of competitor response is accel-

erating. No longer does a pioneer in

global markets enjoy a substantial

lead time over competitors. Nimble

com petitors, benefiting from lower

overhead and operating costs, enter

rapidly with clones or low-cost sub-

stitutes, and take advantage of the

pioneer's investment in R&D and

product development. Modern com-

munications and information technol-

ogy also encourage rapid competitor

response to price changes, or new dis-

tribution and promotional tactics.

and further heighten the pace of com-

petition.

onfronting ompe tition

No t only is com petitio n intensifying

for all firms regardless of their degree

of global market involvement, but

the basis for competition is changing.

Competition continues to be market-

based and ultimately relies on deliver-

ing superior value to consumers.

However, success in global marke ts

depends on knowledge accumulation

and deployment. Firms that win in

the market place will be those that

can use information to their advan-

tage to guide the delivery of superior

value. Further, the increased blurring

of product market boundaries and in-

terlinking of markets means that

how value is perceived and by whom

is less clear.

Firms beginning to enter interna-

tional markets are in a position to

limit competitive exposure by choos-

ing markets that are free of formida-

ble foes. They can zero in on markets

where they have a competitive advan-

tage, such as being the low cost sup-

plier in a price sensitive market. In

addition, firms m PHASE 1 tend to

be dealing with established competi-

tors that are known quantities, and

frequently compete on a single dimen-

sion, e.g., cost leadership.

Competition mounts quickly for

firms in PHASE 2 as they expand

their operations in international mar-

kets. Not only does competition in-

crease, but it tends to proliferate and

become quite diverse. New competi-

tion may enter the market, and exist-

ing competitors react to the firm's

actions, requiring adaptation of its

competitive strategy. Furthermore,

the nature of competition may vary

from one market to another. In some

12




markets, the firm may differentiate

its products, to beat competition

while in others it needs to focus on

cost leadership, making it difficult to

leverage core competencies across

markets.

Firms in PHASF 3 of international

market development face intense

competition throughout the world.

Their far-flung operations will en-

counter competitors of all types who

may mount a frontal attack, or

cherry-pick lucrative market niches

or attempt to block the firm's expan-

sion into new markets or market seg-

ments. In addition, global markets

are often highly interdependent, with

actions in one market having conse-

quences for many other m arkets. The

astute global marketer will attempt

to gain a competitive edge and take

advantage of these interdependencies.

onscience

The fourth challenge relates to the

firm's moral and social responsibili-

ties in the global marketplace. A host

of such responsibilities can be identi-

fied, covering a broader spectrum of

social and corporate issues. Environ-

mental issues, for example, have

emerged as a key theme in the 9O's.'-

Companies have become increasingly

aware of the need to take measures

to limit destruction of the environ-

ment. These include measures to

limit pollution of the atmosphere

through the emission of gases and

other toxic substances, to conserve re-

sources such as paper and plastic,

whose production results in environ-

mental destruction, and to produce

and design products and packaging

which are environmentally friendly.

Such measures need to cover all as-

pects of the firm's activities from

R&D and production to marketing

and service, as well as its operations

in all parts of the world. Production

should be engineered so as to con-

serve resources and limit toxic waste.

Products should be designed to be

free of environmentally harmful sub-

stances, such as phosphates and

fluorocarbo ns. Use of recyclable

packaging and refillable containers

also helps reduce environmental pol-

lution.

Another area of social responsibil-

ity of particular relevance in interna-

tional markets is concern with

customer education and general well-

being. This is often an important is-

sue in marketing in Third World

countries, where disadvantaged or

poorly educated consumers are less

able to judge the merits of a product

or service or understand how to use

it. Attention to the potential of pro-

motional material or product infor-

mation to mislead customers is

important. While customers in indus-

trialized nations are accustomed to

puffery or exaggerated product

claims, and are typically highly skep-

tical of manufacturer-originated mate-

rial, customers in developing

countries are often less well-equipped

or less likely to screen such material.

Ability to read or understand usage

instructions is another issue requiring

attention. Hiring support staff to ex-

plain appropriate usage and educate

consumers is often an effective ap-

proach.

Product safety standards should

also meet the most exacting interna-

tional standards, even in countries

where no such regulation exists. This

is especially critical in the case of

products such as pharmaceuticals,

where substantial health risks are pre-

sent. Firms must take the responsibil-

ity to provide accurate information

to the industry and regulatory bod-

ies,

and to educate consumers and

distributors to ensure appropriate us-

age.

onforming to onscience

Intense competition, rapid change,

and increased complexity in the

global marketing environment make

it more difficult, but all the more im-

perative, that a firm act in a socially

responsible manner. Firms in

PHASE may find the task simpler

than those in PHASE 2 and PHASF

3,

as their activities are contained in

a small number of markets. They

may, however, adopt a somewhat pa-

rochial approach to social responsi-

bility, applying the standard of their

home m arket in other coun tries.

Firms in PHASE 2 are likely to be

faced with diverse standards of ethi-

cal and socially responsible behavior.

These conflicting demands often

make it difficult to formulate a coher-

ent strategy for dealing with ethical

issues in the different countries. Fur-

thermore, they pose a moral dilemma

for the firm in terms of whether and

how far the firm should impose the

ethical standards of its home market

in other countries, where these are

perceived to be superior. Differing le-

gal systems and codes of business

conduct may further complicate the

issue.

In PHASE 3, conscience becomes

an all encompassing concern. With

operations in large numb ers of coun-

tries throughout the world and with

sales volumes exceeding the C.N.P.

of many nations, the global corpora-

tion must be highly sensitive to the

impact of its decisions. Co nscience

becomes multi-faceted and requires a

consistent global vision and strong

corporate leadership, to guide ac-

tions worldwide. Decisions that im-

Winter 1996



pact the environment, workers, and

consumer safety and well being in dif-

ferent markets and parts of the world

are also becoming more inter-twined.

A decision to move production to a

developing country has implications

for jobs in other markets and poten-

tial pollution of the environment,

and may give rise to issues of exploi-

tation of Third World workers, or

bribes to local officials and so on.

The firm must weigh each of its ac-

tions and possible outcomes carefully

to ensure that they conform to its

global social and moral conscience.

Organizational Responses to

Global Challenges

The challenges of global markets im-

ply that managers need to radically

transform the organization and re-

think the ways in which they respond

to the new competitive landscape. Or-

ganizational transformation involves

three main components: 1) informa-

tion systems; 2) structure of the or-

ganization; and 3) deployment of re-

sources. As shown in Figure 2, each

component is present in all three

phases, but assumes a focal role in

one of them. As the firm expands its

presence in international markets it

builds progressively on the compo-

nents to establish the found ation for

the organizational response.

Information systems play a key

role in shaping the response, n ot only

in providing external linkages to the

marketplace, customers, agents and

suppliers and other organizations,

but also in forging links within the

organization and creating strong co-

ordinating mechanisms, and enabling

the emergence of new organizational

forms. Organizational structures also

need to be adapted to respond to the

changing dynamics of the environ-

mental and competitive landscape.

Firms organized on the basis of verti-

cal, hierarchical structures will no

longer be able to respon d rapidly

enough or to compete effectively, and

need to be replaced by flatter coordi-

nation-intensive horizontal struc-

tures.

Finally, resource deployment at

different stages of the value chain

needs to be orchestrated so as to

stretch and tap new opportunities in

different parts of the globe, while en-

suring global efficiently and counter-

balancing risk.

The nature of these organizational

changes and the specific function

which is most salient in engineering

change depend on the stage of in-

volvement in international markets.

In initial entry into international mar-

kets,

the establishment of an effective

information system relating to cus-

tomers, competitors and product

markets in different countries

throughout the world is critical. As

the firm begins to establish a pres-

ence in local markets, organizational

form takes on increased importance.

While it is still important to continue

building an effective information sys-

tem and in particular to emphasize

Organizational Response to Global Market Challenges

P H S S

Challenges

Change

Complexity

Compet i t ion

Conscience

INITIAL

MARKET

ENTRY

LOCAL

MARKET

EXPANSION

GLOBAL

RATIONALIZATION

Information

System

Information

System

Information

System

CRITICAL FOCUS

Organization

Structure

Organization

Structure

Organizat ion

Structure

Resource i

Deployment i

Resource i

Deployment i

. I

Resource

Deployment

4




collecting information from local

sources, building strong horizontal

links between organizational units

across countries to provide for trans-

fer of learning and experience and im-

proved co-ordination of operations

becomes a key priority.

In the final phase of internationali-

zation, the firm seeks to rationalize

operations in world markets and

map out a globally integrated system.

Attention to the deployment of re-

sources assumes primordial impor-

tance. These decisions should

leverage the firm's competitive posi-

tion in global market expansion,

while enabling the firm to compete

on multiple fronts.

Information Systems

Information technology and telecom-

munications are radically reshaping

the competitive landscape, and chang-

ing the way in which individual man-

agers and firms interact with each

other around the globe.'^ Informa-

tion systems are a potent tool in shap-

ing the firm's response to the

emerging challenges. They provide

the foundation that enables the firm

to compete effectively in global mar-

kets.

In the initial phase of entry, infor-

mation systems are critical to funnel

information relating to customers,

suppliers, distributors and product

markets in different parts of the

world to guide the firm's strategic

thrust, and at the same time direct

the flow of goods and services and fi-

nancing to the markets targeted. At

first, this information will consist pri-

marily of secondary data relating to

market and environmental condi-

tions in different regions, and will

provide input for choice of countries

and markets to enter, and modes of

market entry. Later, as the firm be-

gins to enter and operate in these

countries, information can be col-

lected from personal sources such as

local m anagers, salespeople, agents,

and distribution channel members to

provide richer insights into the na-

ture of markets and operating condi-

tions as well as the effectiveness of

the firm's operations in these mar-

kets. A key function of this informa-

tion is to enable management to

learn about differences in market con-

ditions, competition, and market in-

frastructures in other parts of the

world, and to determine the need for

adaptation to these markets.

In PHASE 1, information plays a

key role not only in guiding market-

ing strategy and operationa l deci-

sions,

but also in reducing

uncertainty and perceived risk. To

the extent that management lacks fa-

miliarity with foreign markets, opera-

tions in these markets are perceived

as uncertain and to be approached

with cau tion . An effective informa-

tion system helps to reduce perceived

risk and uncertainty, and enables the

firm to link directly with customers

and markets., keeping abreast of

changing market conditions, and

adopting a proactive approach in en-

tering and pursuing these markets.

In PHASE 2 of internationaliza-

tion, emphasis is placed on building

internal information systems within

the firm, linking functional units,

and providing mechanisms for coor-

dination and control. As the firm's

operations become more geographi-

cally dispersed, information systems

linking operations across national

boundaries become critical in order

to ensure improved co-ordination of

operations in different countries, and

exchange of ideas and experience.'"*

Information systems thus enable

firms to operate in multiple countries

and contexts without loss of effi-

ciency, and at the same time take ad-

vantage of their geographic

dispersion and diversity, by linking

up and facilitating the instantaneous

exchange of information between

any part of the organization regard-

less of its geographic location.

In the PHASE 3 of internationali-

zation, information systems provide

both horizontal linkages to facilitate

communication and co-ordination of

activities across boundaries, but also

vertical linkages guiding the flow of

goods and services from production

to point-of-sale. Establishment of di-

rect information linkages enables the

firm to respond more rapidly to fluc-

tuations and changes in demand, and

improve the efficiency of global logis-

tics.'^

Establishment of a global infor-

mation system is also essential to

monitor environmental trends, iden-

tify new product and market opportu-

nities, track competitor moves and

performance worldwide, and thus

guide allocation of resources in

global markets.

Information systems also provide

the firm with a competitive edge in

global industries, by enabling them

to respond more effectively to the

emergence of new industries or the re-

structuring of industries, by develop-

ing a more effective competitive

strategy within a business, among ver-

tical businesses, or across horizontal

businesses, or thirdly by developing

collaborative strategies, with suppli-

ers, buyers or competitors.

Winter 1996

5



Organizational Structure

Organizational structure is another

aspect where changing technology

both facilitates and provides the

stimulus for adaptation to the chang-

ing configuration of the market envi-

ronm ent. In the initial phase of entry

into international markets, organiza-

tional structure is unlikely to play a

catalytic role in internationalization,

but rather will follow the se-

quence/speed of management moves

into international markets. Initially,

responsibility for international mar-

kets is likely to remain within the do-

mestic organization, with

international operations viewed as an

appendage to the domestic market.

As these grow, a separate organiza-

tion or manager responsible for inter-

national activities will be designated.

In PHASE 2 as emphasis shifts to

developing local markets, separate or-

ganizational entities or country sub-

sidiaries with substantial autonomy

are typically established. Einks with

corporate headquarters are likely to

be relatively weak based primarily on

financial controls. With the integra-

tion of markets, and increasing inten-

sity of com petition, p ressures arise

for tighter links across geographic

boundaries, to improve co-ordin-

ation, eliminate duplication of effort,

and allow for transfer of learning

and experience from one part of the

organization to another. Advances in

communications technology facilitate

the growth of new information-rich,

coordination-intensive organizational

structures. As a result, traditional hi-

erarchical models of organizational

structure are giving way to "heterar-

chies" with strong organizational

links'^ based on close working rela-

tionships rather than formal clearly

defined organizational principles and

responsibilities. These facilitate joint

development and worldwide sharing

of knowledge so that strategic capa-

bility and competitive advantage is

enhanced and the firm's core compe-

tencies and expertise are leveraged

worldwide across geographically dis-

persed operations.

In the third phase of internation-

alization the organizational structure

must not only provide strong hori-

zontal links between operations

worldwide, but also strategic flexibil-

ity to facilitate rapid deployment of

resources in response to competitor

moves or changing market, resource

and environmental conditions. Espe-

cially in industries where technology

is changing rapidly or ch aracterized

by highly volatile turbulent environ-

ments and discontinuity, develop-

ment of adhocracies- organizational

structures which are project based,

may be most effective. This type of

structure is based on the use of pro-

ject teams, or highly decentralized

networks of relatively autonomous

individuals or groups. Intensive lat-

eral communication is then required

in order to manage interdependencies

and ensure that the team or network

functions effectively.

In a global organization , project

teams may take the form of cross-

functional teams, set up to deal with

issues which cross geographic and

functional boundaries, as, for exam-

ple, the design or development of

global or regional products or the

management of global or regional

brands or alternatively the manage-

ment of global customer accounts.

Top manag ement's role thus shifts

from that of controlling functions

and activities in an organizational hi-

erarchy to one of managing a geo-

graphically dispersed network. In a

large organization, this may lead to

the creation of a superstructure or ba-

sic infrastructure of assets., resources

and management practices., which

supports and nurtures flexible net-

works of individuals or groups which

operate on top of this infrastructure.

New coordination intensive net-

works also result in a shift to greater

reliance on markets and outsourcing

of functions and operations rather

than performing them internally.

Hence organizations may participate

as part of a virtual organization coor-

dinating or collaborating with other

organizations for a specific project or

task. As a result, not only will inter-

nal organizational structures become

flatter, and be characterized by

stronger horizontal coordination, but

external networks will become more

crucial and communication intensive,

as an increasingly number of func-

tions are performed by loose net-

works of businesses collaborating

together across time and space.

Resource Deployment

Management also needs to deploy re-

sources to achieve the desired levels

of growth in the direction targeted.

As in the case of organizational struc-

ture, in the initial phase of interna-

tional operations, resource allocation

is relatively straigh tforward, and is

made within the framework of do-

mestic market operations. The pri-

mary issue is the relative allocation

of resources to international markets.

Often this allocation is made incre-

mentally, as the firm gradually edges

into international markets, rather

than targeting a specific goal or level

of international sales.

As the firm expands in interna-

tional markets and moves into

PHASE 2—local market expansion—

resource allocation decisions are

6

The C olumbia Journal of World Business



likely to be made on a country by

country basis, as each local unit or

country subsidiary operates autono-

mously. Often this results in resource

deployment focused on current mar-

ket potential, with limited attention

to future market development and

growth, or potential in areas outside

the existing scope of operations, as,

for example, in emerging markets. At

the same time, coordination of re-

source deployment across national

boundaries is typically lacking, result-

ing in duplication of effort.

In the PHASE ^ of globalization,

as the firm seeks to rationalize opera-

tions worldwide, and map out a glob-

ally integrated strategy, effective

resource deployment plays a greater

role. Portfolio analysis provides a use-

ful tool to assess global resource de-

ployment and to determine which

areas of the world and product busi-

nesses provide the most attractive op-

portunities for future growth and

where operations should be har-

vested or divested. The interconnect-

edness of geographic markets and

product businesses can also be as-

sessed to determine how far expan-

sion or retraction decisions will

impact profitability in other markets

or product businesses. Resources can

then be deployed so as to achieve a

balance between growth and mature

markets so as to ensure that the firm

is well-placed for the future and that

risk is diversified.'''

At the same time, the interconnect-

edness of markets has to be consid-

ered, as it affects management's

ability to diversify risk by being in in-

dependent markets as opposed to

achieving economies through build-

ing a strong competitive position in

highly interconnected (interdepend-

ent) markers. Opportunities for

achieving global efficiencies through

scale economies, or improved co-ordi-

nation and integration of operations

or alternatively the transfer of ideas

and experience across geographic

markets and product businesses can

also be identified.

A global portfolio of countries,

product businesses, and market seg-

ments should thus be selected which

enables the firm to push forward the

frontiers of global market expansion.

Resource deployment should at the

same time, position the firm to com-

pete on multiple fronts, and meet di-

verse sources of competition, while

retaining strategic flexibility to re-

spond to a turbulent and rapidly

changing market environment.

Conclusion

Regardless of where the firm is on

the path towards globalization, it

must respond to the forces shaping

the global environment and the chal-

lenges they present. The precise na-

ture of the challenges continues to

change and the form they will take in

the twenty-first century remains un-

certain. It is however clear that to be

successful, the firm must be an even

more astute marketer than in the

past. The necessity to respond

quickly and appropriately to opportu-

nities and challenges throughout the

world places a premium on develop-

ing an effective global strategy.

An increasingly turbulent environ-

ment poses new challenges to manag-

ers that require different

organizational responses depending

on the degree of involvement in inter-

national markets. The firm's informa-

tion system and its use of technology,

facilitates initial involvement in inter-

national markets and establishes the

foundation for subsequent expan-

sion. As the firm expands its involve-

ment in international markets, the

organizational structure must evolve

to coordinate operations in diverse

and far-flung markets. Finally, as the

firm seeks to consolidate its position

in global markets, the ways in which

it deploys resources through out the

world takes on paramount impor-

tance. To succeed the firm must be-

come an organic process that

continually evolves, adapts, and re-

sponds to the changing realities of

the global marketplace. Firms that

are able to do this will prosper; firms

that do not, will wither.

Winter 1996

7





Documents

1responding to Challenges of Global Marketing